For obvious, numerous reasons we are producing less stuff now than before, so we have less available to consume.
Prices must outpace wages, or we get empty shelves, or we can ration. But we MUST consume less on average.
We could talk about taking from the rich, but actually the rich don’t consume all that much in aggregate, so that doesn’t help much (wealth and income don’t matter for this purpose, only consumption).
Assuming they're sold to owner-occupiers who were previously renting, you've increased housing supply in that segment of the market, but you've reduced supply in the letting market, so the net effect will be zero. It won't change net demand or supply across the market as a whole.
If they were keeping those flats empty, that would be a different story.
Housing can not be seen as an investment. We can not have it be an investment, and a necessity, at the same time.
Housing can not, and should not ever produce more returns than the most basic index fund. If it does, no matter how many you build it will still be inaccessible to many.
You may argue that well, if there is more housing then there will be less money to make from investing in it. But here’s the kicker: what do top share holders do if they suspect the operations of the company they have shares in is going to make their shares worth less? They work as hard as they can to change the operations and minimize what they can do.
The same is true when housing is an investment. A property owner will act in their own best interest to reduce the ability for their investment to become worth less money.
This could mean toxic environmentalism, where you don’t actually care about the environment, but you’re using it as an argument against building houses. It could mean actively not giving permits to new constructions. It could mean actively lobbying the government to prevent certain classes of homes being built. Heck it goes all the way to actively reducing side walks, public transportation, etc.
And this is why we can’t just say “uh build more”. The “lack of supply” is a symptom. Not a cause.
The cause is simply that we accept that real estate can be an investment vehicle.
In a sense, every house is unique, and land is certainly unique by it's location and also finite. There really are some number of acres within a particular distance of a city centre.
I guess my gut reaction is that your comment might be right (I am not sure) but strikes me as idealistic.
There’s a couple of things that can help here:
1. Right to build. No local government should be able to say no to you building a small multi family home or single family home on their land.
2. A graduated (by year) increase on renting income for homes. Places that had been rental residences for a few years prior to this also should be forced to stay residential for a while.
3. Empty home wealth tax. If a house has been empty for more than six months a year, it should be taxed a percentage of its fair market value based on vacancy months.
4. Mortgages returns on investment should be limited to a certain margin over inflation. Or just match inflation. More than that should be taxed.
Are these good ideas? Maybe, idk. I’m not the person that’s gonna come up with the model of how to accomplish this. But it’s potentially a starting point.
How would this work in practice and enforced?
Not really. The net effect would be a distribution of wealth across a broader number of people (former renters, now owners) instead of one person (landlord who is accumulating wealth by charging rents from a number of people).
I understand that we typically think of owning property as a means of increasing wealth, more so than renting. But this is only true because we let home values increase.
And it might not even be true now, if renters places their savings other investments.
Property taxes and maintenance costs continue forever.
A property that makes 5% of its value a year, when interest rates are paying 6%, is a bad investment.
Instead of 3-properties at $1 million (total) returning 0.05 million / year, you should sell those three properties and put $1 million into the bank and get 0.06 million/year.
Of course, the idea of land as an investment in the first place is one of the root causes (if not the root cause) of endlessly-rising cost of living, and we're long overdue to address that root cause (namely: by instituting land value taxes).
"My political opponent is attacking the middle class and their investments!"
Real estate is an excellent inflation hedge since as inflation goes up, the value of the real estate and the rent you can get for it both go up in tandem.
Another way to discourage rent seeking is to tax ownership of land more.
Not necessarily. Raising interest rates lowers inflation.
So increasing interest rates is a double-whammy on housing. The increased mortgage prices lowers home values, fighting inflation _AND_ causes future profits to be discounted (relative to the risk-free bond rate).
The housing market was overheating earlier this year because low 2.5% interest rates meant that people's monthly payments were much lower than people expected. But now that we have 6% mortgage prices, the monthly mortgage price is increasing (which will eventually force housing prices down).
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This is why rising interest rates is the main tool of the Fed right now. Its not the perfect solution, but its sufficient until Congress enacts lasting change (ie: policy changes that lead to an increased supply of our luxury goods). The bank can only change interest rates so much before it becomes unreasonable.
Going from 1% rates to 2% is in many ways a bigger change than say a 15% to 16% increase.
Make no mistake, the Fed are not idiots, they have been trying to introduce inflation for a long time, but initially they succeeded in asset inflation only. With the help of Covid and the war, they got their wish.
But wage inflation needs to match the goods/services inflation, because without it, borrowers will be even less able to pay their debts.
In order to really stamp out inflation, the Fed would need to raise the interest rate to 10%, essentially forcing the US to declare bankruptcy.
The Fed is hoping to introduce a mild recession, which, they hope, would reduce all kinds of inflation, without them having to raise the rates above 3.5% or so.
The idea that the rich pay interest to themselves is laughable.
For better or for worse, human labor and fossil fuels are the two most indefensible ingredients of our current global economic system, and the supply of both has been badly disrupted.
Obviously a lot has changed since the 70s, but why exactly aren't we having 70s stagflation or worse in the US? Do domestic oil and gas play a role?
we had strong unions back then which would demand double-digit COLA raises in salary producing a wage-price spiral.
given how people could actually afford homes back then, though, i don't think this was a particularly bad thing.
what we have now contains all the inflation in the system to the upper class and asset bubbles.
we need either to have the cost of housing deflate or the wages paid to inflate. it will be less painful to inflate wages. this isn't what we're going to do though.
Optimistically I’d guess we’re looking at 3-5 years to get inflation under control and that might include a recession (thats already started).
What it does sound like is younger people hoping for a recession because they think it will collapse housing prices. They’re wrong, but what’s new.
2 quarters of negative GDP growth is a recession. We’ve had 1 quarter so far and lay offs are increasing.
I hope not, but with increasing rates we stand a good chance.
The highest authority on this matter is the NBER. Their definition is pasted, below. I don’t see a significant decline and so far it has not impacted employment. We’re still adding a quarter million net jobs each month.
“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
> What it does sound like is younger people hoping for a recession because they think it will collapse housing prices. They’re wrong, but what’s new.
I wish I had your crystal ball.
But the easiest way to guess at the future is to look at similar problems of the past.
Bank of Canada already said inflation won’t be under control for 2 more years.
If America were producing its own things alone, the supply shock would have pushed inflation much much higher.
We are extremely privileged to be able to acquire resources even if one producer goes down.
9.1% isn't massive?
Are you sure? Numbers I looked at suggested both global and US manufacturing output is up both in terms of output and percent of GDP. So consumption could rise.
https://www.macrotrends.net/countries/WLD/world/manufacturin...
For example:
See the study linked in that article: https://www.theguardian.com/environment/2021/nov/05/carbon-t...
The only way that prices will fall is if demand wanes, or supply increases.
No one said people starving is great for the economy. It’s a statement of fact that inflation will not abate unless demand falls or supply increases. It’s pretty hard to increase supply right now.
That's not taking money from the rich, it's funding the basis for society and can pay into debt releasing obligations.
What's fundamentally flawed at the central bank is it's one way street. Congress needs to act.
This is certainly what traditional economics says (they consume, rather than invest) because it's what rich people want us to think, but it doesn't hold out.
For one thing, their private jets and charter flights eat up a lot of fuel. Their lifestyles aren't free.
Second, attribution is a hard problem. When all the poor people drive to work in offices in places chosen by rich people, to create surplus value for the rich, who is consuming all that gasoline? Is it the rich, who benefit from this economic system and the poor being forced to participate? Or is the poor, who are the ones directly buying and using the fuel? Hard to say; at the individual level, attribution is probably impossible.
Third, the whole notion of "poors consume; the rich invest" is only true in proportionate terms. Sure, the billionaires don't directly consume 100,000 times as much as average people--simply because that would be ridiculous. No one can eat 100,000 hamburgers for lunch. But they do consume 100-1000 times more than average people--fuel is a big one, and those 20,000-SF houses aren't cheap to maintain--and this adds up. Their footprint on resources is bad enough; their overuse of land is destructive--this kind of private wealth is a catastrophic misallocation of resources.
Finally, what tends to happen with the rich is that they don't put their money into direct consumption (because, again, there's no hedonic payoff to having 100,000 hamburgers for lunch; 99,995+ will go to waste) so much as they use what they have to further secure personal and familial advantages, both economic and political. That's what this investment is: the configuration of society by the last round's winners to ensure they'll win the next round. This has resulted in an economic system that benefits them and keeps the middle classes comfortable enough to survive but--you're right on this--is unsustainable.
You're absolutely correct to say that "hit the rich" is far from sufficient here. We in the middle class are going to need to sacrifice. Thing is, no one's going to sacrifice anything with the current upper class in charge. Would you give up anything for these people and the society they've built? I sure wouldn't. You can't ask people in the middle classes to eat less meat and fly less often if you're taking a private jet to Davos. Neoliberalism has a lot of problems, but a big one is that these WEF people have literally none of the moral authority on which they seem to believe they operate.
No matter what the economic system, somehow you need to convince someone to work in the sewer and operate complex orgs of thousands of people.
One option is to use a gun - you point it at people you don’t like and make them sewer workers.
Another is to arbitrarily hire and have no consequences. This leads to incompetence and mismanagement, as often happens in government everywhere and in socialist / communist nations that nationalize industries and staff them with political hires.
In capitalist societies we give more stuff to people who do hard jobs and / or are highly effective. This is the carrot - work a high stress or shitty job and get more stuff. The stick for failure is you get less stuff, but at least you aren’t shot in the head as they do in other systems.
You can argue until you’re blue in the face about neolibs / the rich / whatever. Doesn’t change the fact that inequality is a requirement for society to function if you expect someone to work in shit-filled holes underground all day while others pontificate about philosophy.
I think you realized that you were on shaky ground and stuck "effective" in there, but I'm going to call you on that one: please, explain to me how the strong correlation between shitty jobs and shitty pay is entirely about leveraged value creation and not at all about social status and Rules for Rulers?
Please, if you don’t like America then don’t come here, or if you are here just leave. However a lot of supposed socialist utopias in Europe have effectively zero immigration that allows you to be a full citizen on their pension rolls. Just see how hard it is to immigrate to the Netherlands or Norway.
[1] https://www.bloomberg.com/graphics/2022-wealth-carbon-emissi...
It's not about how they spend money, it's about how they "make" money. It's about their passive income.
The economy is a machine that squeezes workers: it pays as little as possible while extracting as much value as possible. The juice that results from the squeeze then gets distributed according to who owns the financial assets. One person's passive income is another person's obligation to pay up while receiving no actual work in return. The true excess of the rich is the juice from the squeeze -- getting paid for being rich -- not in the particulars of how they spend it.
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Ok, so that framing was hyper aggressive, more than I think is fair, because there is another side to this story: as a consumer, you get to put the squeeze on producers and make them compete, investment carries risk, consumer excess exists too, etc etc. You know the story, you've heard it a hundred times before. However, I'd wager you have heard the "how capitalism works for you" side at least 10x as often as the "how capitalism works against you" side, which should be suspicious, because both are true and both are highly relevant to your life. Also, if you felt that the paragraph above was hyper aggressive, you should also feel that the traditional narrative is hyper aggressive, because they are mirror copies of each other.
This hints at the real issue which is that our policies and culture have been hijacked to aggressively favor capital at every turn. The inevitable result is "the wedge" graph, US economy expands 5x while 80% of people see a regression in wealth. The rising tide does not float all boats. Actually, it sinks most of them. Even the meager promises of the "rising tide" social contract have been broken. It's time to push back.
That won't stop me from trying.